Canada: longer-term loans buoy car sales

The North American country is still battling debt issues, but car buyers are increasingly choosing to stretch their loan in order to lower their monthly payments. The practice does stack to increase sales, but experts warn the practice could be dangerous.

According to figures coming from marketing information firm J.D. Power, today the average duration of a light-vehicle loan in Canada has reached 69 months. That’s close to the 72 months high recorded during the third quarter of 2013. The situation signals Candians don’t refrain from big purchases even as analysts warn that this leads to an unsustainable increase in personal debt.

“Canadian consumers have been ‘holding the economic fort,’ as exports and business spending lag previous recoveries,” says Peter Buchanan, an economist at CIBC World Markets in Toronto. “While July saw a strong rebound in auto sales, their ability to do so indefinitely is doubtful.”

Carlos Gomes, an economist specializing in the industry at Bank of Nova Scotia in Toronto predicts car and light truck sales in Canada could increase to a record 1.77 million units in 2014. Statistics Canada said light trucks demand was adamant to record new-vehicle sales of 197,740 autos in May. Retail sales went up to an unprecedented $42.0 billion ($38.4 billion – canadian dollars).